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Van Halen, M&Ms, And The Next Market Downturn

September 3, 2017

Van Halen, M&Ms, And The Next Market Downturn

How watching the right indicators will avoid disaster

The planet-sized egos of rock & roll performers are legendary.

Few things symbolize this better than the outrageous requests they often make when on tour.

These requests are referred to as “riders”, and appear in the contract a tour venue receives in advance of the artist’s arrival. These contract riders specify the physical conditions that the singer/band requires to be in place before arriving to perform. Stage lighting settings, sound equipment, furnishings, etc — that kind of stuff.

And these rider requests can get pretty funky – often extremely so — when it comes to backstage perks the performers want.

For example: A wooden pond filled with koi carp (Eminem). A driver who will not speak or make eye contact (Katy Perry). 20 white kittens and 100 doves (Mariah Carey). Seven dwarves (Iggy Pop). 50,000 bees (Slayer). A sub-machine gun (Mötley Crüe). And, yes, even a great white shark (Hank III).

The practice of making these kind of outrageous demands stems from a rider Van Halen inserted into the contract for its 1982 world tour, which insisted on a bowl of M&Ms to be provided backstage, but with all of the brown M&Ms removed.

As this image below of the actual rider shows, the band was very explicit in its seriousness about this:

Once the media got whiff of this, it had a field day roasting the band’s narcissistic chutzpah. A new high-water mark of diva capriciousness had been established, which quickly became legend. A feat of prima donna pampering that subsequent performers have been trying to top ever since.

But as crazy as it sounds, Van Halen’s “no brown M&Ms” rider had nothing to do with caprice. There was a solid rationale behind it.

In fact, it was quite brilliant.

 

…click on the above link to read the rest of the article…

Better A Year Early Than A Day Too Late

August 22, 2017

livelifehappy.com

Better A Year Early Than A Day Too Late

Preparation only has value if it’s done in advance

He who hesitates is lost.
~proverb

Change, especially a collapse scenario, often happens quite fast. So fast that there’s little to no time to react in the short frenzy between “before” and “after”.

This is true throughout nature. Glaciers that took millennia to form calve off into the sea in a matter of moments. Old-growth forests filled with thousand-year-old trees can be decimated by a single wildfire. The bubonic plague “Black Death” pandemic of the Middle Ages killed one-third of the Earth’s human population within just four short years.

Fast change is also a hallmark of human society. Movements and ideas — oftentimes simmering for years, decades or longer — suddenly reach a critical state in which the populace is swept up into history-making action. The outbreak of World War I. The Civil Rights movement. The dissolution of the USSR. The Digital Age.

When it comes, change happens swiftly. And life after — for better or worse — is forever different.

I’ve witnessed this time and time again since co-founding PeakProsperity.com. And in pretty much every instance, I notice that the vast majority of people — including even many of the the watchful and preparation-minded folks who read this site — are caught by surprise.

Fukushima

A good example of this was the disaster at the Fukushima Daiichi nuclear power plant in March of 2011. Of course, no one could have foretold the timing and scale of the tsunami, and virtually nobody expected that it could overwhelm the facility as spectacularly as it did. So in the immediate aftermath of the plant’s failure, the world looked on in sympathy, not fear.

But on March 12th, that changed as the first of several hydrogen explosions was observed among the reactors. And then my phone rang.

…click on the above link to read the rest of the article…

The Bond Bubble

August 19, 2017

The Bond Bubble

blowing-bubbles-300x255Central banks have artificially lowered interest rates, making bonds attractive. And since bonds are historically safe havens, it’s hard to even comprehend a bond bubble.

But as interest rates start to rise, the concern over bonds rises too. Adding some gasoline to the fire is the fact that the largest buyers of government bonds have been governments themselves. When they stop this buying spree, there will be more bonds than buyers.

This will likely to lead to a default or something equally painful.

Simply, US Treasuries are in a bubble.

Of course, many are confident that the US central bank, the Federal Reserve, won’t continue hiking rates much longer. That higher short-term interest rates are a short-term strategy that will be abandoned soon.

Bond markets aren’t expecting interest rates to return to normal levels. Why?

For one, the US economy is addicted to cheap credit and this has only gotten worse since the last financial crisis.

Therefore, with higher interest rates, people go bankrupt. And not just mortgage borrowers, but consumers and corporations face dire consequences if interest rates go higher.

Since the price of stocks, bonds, and real estate are all inflated to the nth degree, higher interest rates will likely correct these prices and send them downward.

Since expected future cash flows would be discounted at a higher interest rate, present values (and thus market prices) would deflate. Deflation of assets won’t change the amount of debt, but it will wipe out equity capital.

Meanwhile, the yield curve has become “flatter” recently, suggesting banks’ profit opportunities from lending are diminishing, which in turn decreases the inflow of new credit into the system.

Further declines in yield spread essentially mean a severe economic recession and most certainly a stock-market crash.

…click on the above link to read the rest of the article…

Why The Markets Are Overdue For A Gigantic Bust

June 10, 2017

r.classen/Shutterstock

Why The Markets Are Overdue For A Gigantic Bust

It’s just not possible to print our way to prosperity
Let me begin with a caveat: confirmation bias is an ever-present risk for an analyst such as myself.

If you’re not familiar with the term, ‘confirmation bias’ suggests that once we’ve invested time and emotional energy into developing a worldview, we’ll then seek information to confirm that view.

After writing about the economy for so many years, I’m now so convinced that we can’t print our way to prosperity that I find myself seeing signs confirming this view everywhere, every single day. So that’s the danger to be aware of when listening to me.  I’m going to keep repeating this mantra and Im going to keep finding data that supports this view.

Based on lots of historical inputs, I have concluded that Printing money out of thin air can engineer lots of things, including asset price bubbles and the redistribution of wealth from the masses to the elites.  But it cannot print up real prosperity.

As much as I try, I simply cannot jump on the bandwagon that says that printing up money out of thin air has any long-term utility for an economy. It’s just too clear to me that doing so presents plenty of dangers, due to what we might call ‘economic gravity’: What goes up, must also come down.

Which brings us to this chart:

The 200 bubble blown by Greenspan was bad, the next one by Bernanke was horrible, but this one by Yellen may well prove fatal.  At least to entire financial markets, large institutions, and a few sovereigns.

It’s essential to note that more than two-thirds of the net worth tracked in the above chart is now comprised of ‘financial assets.’  That is, paper claims on real things.

…click on the above link to read the rest of the article…

Both ECB And BOJ Are Just Months Away From Running Out Of Bonds To Buy

May 18, 2017

Both ECB And BOJ Are Just Months Away From Running Out Of Bonds To Buy

With the Fed contemplating whether to hike again next month and start “normalizing ” its balance sheet before the end of 2017, the two other major central banks are facing far bigger problems.

* * *

Two months after the BOJ quietly started tapering its QE program, when it also hinted it may purchase 18% less bonds than planned…

… Governor Haruhiko Kuroda admitted last week that the Bank of Japan’s bond holdings are currently growing at an annualized pace of only ¥60 trillion ($527 billion), 25% below the bottom-end of its policy range, and confirming that without making any formal announcement, the BOJ has quietly followed the ECB in aggressively tapering its bond buying program.

Under questioning from opposition party lawmaker Seiji Maehara, who noted that the pace of bond accumulation by the BOJ had slowed, Kuroda said the trend could continue, without elaborating. He noted that the central bank’s target is to control interest rates rather than the amount of bond purchases. “This development signals to me that they are going with rates without talking about a quantitative target,” said Atsushi Takeda, an economist at Itochu Corp. in Tokyo. “That will be better when they think about an exit.”

While the BOJ’s purchase slowdown has been visible for months in data released by the central bank, Kuroda’s confirmation of this reality in parliament last Wednesday marks a stark change. As Bloomberg notes, until now he’d struggled to emphasize that the annual pace could vary from an indicative 80 trillion yen, depending on the state of the economy and financial markets. He now appears to have thrown in the towel.  Meanwhile, investors are watching for any hint of tightening in monetary policy amid speculation that the central bank’s bond purchase regime is unsustainable and as consumer prices in Japan are expected to pick up later this year. 

…click on the above link to read the rest of the article…

Where There’s Smoke…

April 22, 2017

Where There’s Smoke…

…There’s central bank manipulation

Central banks around the world have colluded, if not conspired, to elevate and prop up financial asset prices.  Here we’ll present the data and evidence that they’ve not only done so, but gone too far.

When wee discuss elevated financial asset prices we really are talking about everything.

we’re talking not just about the sky-high prices of stocks and bonds, but also of the trillions of dollars’ worth of derivatives that are linked to them, as well as real estate in dozens of countries and locations.  All are intricately linked together. For instance, stocks are elevated, in part, because bond yields are so low.  Sam for real estate.

Here are three questions most alert investors are asking:

  • Question #1: When will financial assets ever ‘correct’ and fall in price?
  • Question #2: How much does overt propping by the central banks have to do with today’s elevated prices?
  • Question #3: How much does covert propping by central banks play a role in these inflated markets?

These are important questions to consider because if central banks have been too involved and gotten themselves mixed up in trying to ‘wag the dog’ by using elevated financial asset prices as a means to drive economic expansion — then the risk is a big implosion in financial asset prices if their efforts fail.

The difficulty, as always, is that you can’t print your way to prosperity.  It’s never worked in history and it won’t work this time either.  You can, however, print (or borrow) to delay a correction, after which a boost in real economic growth (or additional income) had better materialize to save your bacon.   But if enough growth does not emerge to both pay back all the old outstanding loans plus all the newly created debt and currency, then you’re going to experience a worse correction than if you had not tried to print/borrow your way to prosperity.

…click on the above link to read the rest of the article…

It’s Bubble Time!

February 23, 2017

Shutterstock

It’s Bubble Time!

Wisdom & discipline will separate winners from victims

It’s impossible to predict with certainty how much more insane our financial markets will get before an inevitable correction. But my personal bet is: A lot!

For my reasons why, take a few minutes to watch the chapter on bubbles below from The Crash Course. For those who haven’t seen it before, the takeaway is this: bubbles pop only when greed in the market has been exhausted:

Bubbles make no sense economically. Or rationally. But they happen all the time as a part of the human condition.

Even while financial bubbles are enabled by dumb monetary and banking decisions, their actual genesis is rooted in primal human emotions. Greed on the way up, and fear on the way down.

The hardest part about these bubbles is not being swept up in them.  As the above video shows, history is chock full of asset bubbles. We humans just never seem to learn. Like Charlie Brown’s endless attempts to kick Lucy’s football, we get suckered in by the promise of easy riches, only to end up flat on our back when the market suddenly yanks that promise away.

Wash, rinse, repeat.

Most of you reading this might be thinking “Hey, I’m a reasonable intelligent person. I won’t fall victim to the next bubble.” Perhaps, but maybe not. The numbers say that the majority of you will. Unfortunately, being smart — even a genius — is no protection against being ruined by a bubble.

Remember from the video that even Sir Isaac Newton, easily one of the most brilliant humans ever to live, got his clock cleaned by the South Sea Bubble:

Newton Poor Chart

(Source)

…click on the above link to read the rest of the article…

A Murderous Complacency

February 4, 2017

A Murderous Complacency

Dark omens are circling everywhere in today’s markets

murder: a flock of crows

~ Miriam-Webster dictionary

Many view the appearance of crows as an omen of death because ravens and crows are scavengers and are generally associated with dead bodies, battlefields, and cemeteries, and they’re thought to circle in large numbers above sites where animals or people are expected to soon die.

~ “Nature”, PBS.org

Running PeakProsperity.com requires me to read and process a lot of data on a daily basis. As it’s hard to digest it all in real-time, I keep a running list of charts, tables and articles that catch my attention, to return to when I have the time to give them my full focus.

Lately, that list has been getting quite long. And it’s largely full of indicators that concern me; signals that the long era of “extend and pretend” in today’s markets may finally be at its terminus.

Like crows circling overhead, every day brings with it new worrisome statistics that portend an ill change ahead. Indeed, these omens are increasing so quickly now that it’s hard not to feel like Tippi Hedren in Hitchcock’s suspense classic The Birds:

So what are the data that make me think these crows will soon be feasting on the carcass of the great bull market that has powered stock, bonds, real estate and most other asset classes to record highs since 2009?

Rogue’s Gallery

Complacent Investors

Investors have enjoyed remarkably gentle treatment by the stock markets over the past half-decade. Retracements have occurred much less frequently than historical norms, and have been shallow and short-lived when they happened.

Tom Lee, head of research at Fundstrat and often referred to as “Wall Street’s biggest bull” notes that 2016 was the mildest year on record for the S&P 500, with only 7 days in which the index traded at less than 3% of its 52-week high.

…click on the above link to read the rest of the article…

 

Deutsche Warns Of Imminent “Domino Impact” For Stocks From Bond Carnage, Soaring Dollar

November 12, 2016

Deutsche Warns Of Imminent “Domino Impact” For Stocks From Bond Carnage, Soaring Dollar

One of the more confounding aspects of the record bond selloff experienced in the past few days, is that it not only left broader equity indices unscathed, but took place as the Dow Jones hit a new record high. This, as Goldman explains, is problematic, given that the ‘low yields for longer’ theme, i.e., the infamous “Fed Model” which was used to justify record high stock multiples purely as a function of record low bond yields, that underpins the valuation of several financial assets is under scrutiny. As Goldman puts it: “the continued focus” on the spike in bond yields “seems to us justified.”

The reason, as Goldman’s Francesco Garzareli cautions, is that “some of the ongoing price action in fixed income ties up well with macro developments and remains overall favourable for risk assets. But other traits of the repricing seem inconsistent with fundamentals, and are potentially destabilizing for broader markets.” Where things get interesting, is where Goldman and Deutsche Bank diverge on their opinion whether the recent blow out in yields will serve to limit future equity gains.

 Goldman is more sanguine:
At around 2%, US 10-year Treasuries are now at the low end of the valuation band around our preferred measure of macro ‘fair value’ in which they fluctuate 68% of the time. Bonds in Germany, the UK and Japan are priced similarly on this dimension, as shown in Exhibit 1 below (by comparison, in the Summer, the degree of departure of yields from their ‘fair’ levels was a very rare event, occurring on average less than 5% of times).

…click on the above link to read the rest of the article…

Hell To Pay

September 24, 2016

SkillUp/Shutterstock

Hell To Pay

The final condition for a market crash is falling into place 

Sometimes I wonder if I’m ever going to run out of new things to say about the economy. Nothing interesting has happened in a long time.

Our liquidity-drunk “markets” remain over-priced due to the chronic intervention of the global central banking cartel, which has demonstrated over and over again that it won’t tolerate even the slightest drop in asset prices.

Those familiar with my writing know I put the word “markets” in quotes because we no longer have a financial system where legitimate price discovery is a regular — or even recognizable — feature.

It’s destined to fail. What more can be said about such a flawed system?

Well, a lot as it turns out.

And failure to pay attention at this stage of economic and ecological history will prove to be exceptionally painful.

The Beginning of the End

It’s been a long 7 years for those of us who believe fundamentals matter.  For quite some time they have not.

So we reality-based fundamentalists have largely been reduced to pointing at the parade of policy failures and ham-fisted market manipulations and saying, essentially, That’s just dumb.

But ‘dumb’ mistakes have become ‘stupid’, and ‘stupid’ became ‘idiotic’, and now ‘idiotic’ mistakes are piling up, accumulating into a mountain of stored potential energy that will someday topple destructively across the global markets.  We’ve all known, deep down, that money printing is not the same as capital formation, and that prosperity never truly results from redistributing wealth from one group to another. And yet, far too many have been willing to play along and place their trust in the central banks.

Well, we’ve finally reached the beginning of the end.

…click on the above link to read the rest of the article…

Stock & Bond Bubbles Much Worse Than 1929-David Stockman

September 17, 2016

Stock & Bond Bubbles Much Worse Than 1929-David Stockman

stockman-david-new-cr-caryl-englander

Economic expert and best-selling author David Stockman offers a dire view of the deep financial trouble America faces in his new book titled “Trumped!”   Stockman warns, “I think we are on the very edge, but what is different this time and makes it scarier . . . is I believe the central banks that ruled the roost have gone from one extreme to the next and done unfathomable things like negative interest rates on $13 trillion of bonds around the world, monetization of the debt, and bond purchases that are staggering such as $90 billion a month in Europe. . . . So, this time, as the phrase goes, they went all in.  They have violated every principle of sound money and sustainable finance that mankind has ever learned about over many centuries.  They have taken us to the edge, but they are out of dry powder.  I think it’s pretty obvious that they can’t go any deeper with subzero interest rates, or negative interest rates. . . . If they tried this in the United States, I think there would be a huge political uprising. . . . They are out of dry powder and out of tools, and therefore, the financial markets of the world are more vulnerable, maybe even more so than in 1929.  You are talking about a bond bubble like never before imagined or conceived, and the stock market is the same way as well as derivatives.”

All this financial malfeasance and engineering was fantastic for the one percent, but everybody else got the shaft. For example, Stockman points out in “Trumped!” the last 30 years “The top 1%’s wealth has grown by 300%, and the top “Forbes 400” wealthiest people in the world had their wealth grow by a staggering 1,000%.”  Meanwhile, the “bottom 90% of Americans have seen their wealth steadily deteriorate.”

…click on the above link to read the rest of the article…

Negative-Interest-Rate absurdity is another “rabbit out of the hat.”

May 14, 2016

Negative-Interest-Rate absurdity is another “rabbit out of the hat.”

For the second time this year, Spain’s caretaker government just managed to sell 50-year bonds in a €3 billion ($3.4 billion) deal. Despite maturing in the year 2066, when many of us won’t even be alive and the duty to pay back the debt (assuming it still exists) will have been handed down to our children’s children, the bonds will pay an annual interest rate of just 3.45%. Not only that, but the issuance was over-subscribed by €7 billion.

This is a mind-blowing turn-up for a country that just four years ago needed an unprecedented bailout from the Troika to save its saving banks and avert total financial collapse. It is also a resounding testament to the power of central bank policy to turn economic reality on its head.

Less than three years ago, when Draghi had only just begun doing “whatever it takes” to save the single currency, the Spanish government had to pay a 5% yield to get investors to buy their one-year bonds. Now investors are willing to take 50-year bonds off the government’s hands in exchange for an annual interest rate of 3.45%, despite all the attendant risks involved.

While the Spanish economy has improved somewhat since then, that is largely due to the fact that the government has sacrificed long-term stability for short-term growth, going so far as to plunder half of the nation’s social security reserve fund in order to keep spending at its current levels. The remaining half is exclusively invested in Spanish bonds. Even Brussels now admits that Spain’s public debt is out of control.

To make matters worse, Spain doesn’t have an elected government to speak of and could struggle to form one even after the next round of elections, on June 26.

…click on the above link to read the rest of the article…

Doug Casey Warns: “It’s The Next Stage Of The Greater Depression… The Economy Is Going To Be Very, Very Bad”

April 25, 2016

Doug Casey Warns: “It’s The Next Stage Of The Greater Depression… The Economy Is Going To Be Very, Very Bad”

While President Obama took credit this weekend for saving the world economy from a global depression and stock markets are hovering around all-time highs, not everyone is convinced that central bank policy and government involvement in financial markets has stabilized the system. Doug Casey, one of the most well respected institutional investors in the world and someone who thrives in environments plagued with volatility and risk, joins Future Money Trends to explain exactly why the world has not avoided a Greater Depression and how things are about to get “very, very bad.”

And by very bad he means that centrally manufactured super-bubbles and bubbles are set to wipe out trillions.

You’ve got to remember that all of these governments and central banks all around the world have driven interest rates not just to zero, but to negative levels in some cases… and they are simultaneously printing up trillions of currency units. And even while they are desperately doing that the economy is falling apart in lots of different ways.

…They’ve created a super-bubble in bonds, a bubble in stocks, and meanwhile commodities have collapsed and are below production costs in many cases.

…The economy is going to be very, very bad… It’s the next stage of what I call the Greater Depression. 

Full interview via Future Money Trends: 


(Watch At Youtube)

But as centrally manufactured bubbles burst in one sector of the economy, says Casey, capital will flow en masse to other sectors as investors panic. First to safe haven assets like gold, and then to to broader commodities which have been left for dead since the start of the decade:

…click on the above link to read the rest of the article…

Canada’s Financial Sector just Crapped on its Bondholders, Hoping They Don’t Care

April 20, 2016

Canada’s Financial Sector just Crapped on its Bondholders, Hoping They Don’t Care

To heck with the dreams of its bondholders.

Great-West Lifeco, a Canadian financial services conglomerate which operates subsidiaries in Canada, the US, Europe, and Asia – including Putnam Investments in the US – and with over $1 trillion in consolidated assets under management,  just crapped beautifully on its bondholders.

It wasn’t illegal. Bondholders had agreed to it in the terms of the bond issue. But they’d believed Great-West would never ever dare to do it. Now it did, and it cost those bondholders dearly.

Canadian financial companies issued a total of $45 billion of a special kind of hybrid bonds. And now that Great-West has become the trailblazer, they might all be subjected to the same treatment.

These bonds come with an option to be called after 10 years. If the option is not exercised, maturity is extended by another 30 years and the coupon is converted from the nice fixed-rate payment of yore to a floating-rate coupon based on an interest rate of “Libor plus,” in a world of ZIRP and NIRP.

“Canadian investors never believed a Canadian bank or issuer would do that kind of thing in Canada,” Marc Goldfried, CIO at Canoe Financial LP in Toronto which manages $3.5 billion, told Bloomberg.

But Great-West decided to become a trailblazer by not exercising this option on US$300 million in notes issued in 2006. Now the coupon converts to a floating rate based on the 3-month US-dollar Libor (currently 0.63%) plus 2.54 percentage points, so at the moment 3.17%. And investors have to wait another 30 frigging years before they get their money back! 40 years in total. And they believed they had a 10-year note! And had priced it like one!

…click on the above link to read the rest of the article…

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